世界发展银行-Russia-Economic-Report,-No.-44,-December-2020---Russia_s-Economy-Loses-Momentum-Amidst-COVID-19-Resurgence_-Awaits-Relief-from-Vaccine_92页_5mb

Russia Economic Report #44 Summary

Core Content

This report analyzes the economic developments and outlook for Russia in the context of the ongoing COVID-19 pandemic and its integration into the global economy. The analysis covers the period up to December 8, 2020, and includes data on GDP performance, balance of payments, monetary and fiscal policies, financial sector resilience, labor market changes, and the role of global value chains (GVCs).

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Main Points

Economic Impact of the Pandemic

• GDP Contraction: Russia's GDP contracted by 8% in Q2 and -3.4% in Q3 2020, with negative momentum expected to continue in Q4 due to rising cases and re-imposed restrictions.
• Global Context: The pandemic caused a global recession, with global GDP projected to fall by 5.2% in 2020 and recover by 4.2% in 2021.
• Unemployment: The unemployment rate rose by 2 percentage points over the year, reaching 6.3% in October 2020, the highest in eight years. Job losses were concentrated in manufacturing, construction, and retail/hospitality services.
• Disposable Income: Real disposable income dropped significantly in 2Q and 3Q 2020, with declines of 8.4% and 4.8%, respectively.

Balance of Payments and Currency

• Capital Outflow and Ruble Depreciation: Lower energy export receipts, financial market volatility, and geopolitical risks led to capital outflow and ruble depreciation.
• Ruble Share in Trade: The ruble's share in Russia's external trade settlements increased, particularly with China and India, but firms with foreign currency debt remained vulnerable.

Monetary Policy

• CBR Actions: The Central Bank of Russia (CBR) paused its accommodative policy actions, maintaining the key policy rate at a record low of 4.25%.
• Inflation: The annual headline CPI inflation reached 4.4% in November 2020, exceeding the CBR target of 4%.

Fiscal Policy

• Deficit Increase: The federal budget turned from a surplus of 1.9% of GDP in 2019 to a deficit of 4.6% of GDP in 2020.
• Fiscal Consolidation: Russia's fiscal consolidation in 2021-2022 is expected to be deeper than in other EMDEs, which may slow growth.
• Fiscal Support: Fiscal measures were mainly focused on expenditure (3% of GDP), revenue (0.4% of GDP), and loans, equities, and guarantees (0.6% of GDP).

Financial Sector

• Resilience and Vulnerabilities: The Russian banking sector weathered the pandemic but is expected to face significant challenges in 2021 as regulatory forbearance measures are lifted.
• Non-Performing Loans: The share of non-performing loans reached 16.3%, indicating potential risks to the financial system.

Labor Market

• Employment Decline: Total employment declined by 1.5 million jobs between Q2 2019 and Q2 2020.
• Regional Disparities: Unemployment increased in all federal districts, with the Central and North Western districts experiencing the largest share of job losses.
• Wage Changes: Wages increased in agriculture, education, and health services, but declined significantly in hospitality, construction, retail, and manufacturing.

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Key Information

• Vaccination Outlook: The spread of vaccination in 2021 is expected to lead to a sustained economic recovery.
• Trade Dynamics: Russia's trade with China showed more moderate decline compared to the EU, and China's share in Russia's trade turnover continues to rise.
• FDI and GVCs: Russia's FDI is driven by its natural resources and is largely from tax havens. It is positioned as a second-tier player in the global FDI network.
• GVC Participation: Russia's backward participation is lower than its peers, but forward participation is higher. Its manufacturing exports show more diversified linkages to domestic upstream sectors.
• Trade Openness: Russia's trade openness is lower than expected for its level of national income, suggesting opportunities for deeper integration.
• Policy Recommendations: To enhance integration in GVCs, Russia should reduce non-tariff trade costs, improve regulatory quality, and encourage innovation and R&D spending.

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Integration in the Global Economy

Motivation

• The report emphasizes the need for Russia to deepen its integration into global value chains (GVCs) to drive future economic growth.

Participation in GVCs

• Russia's trade openness is below expectations, and its services trade restrictiveness is high.
• The country has a low share of modern services in its manufactured exports, indicating room for improvement in value-added participation.

Opportunities for Growth

• GVCs can be a driver for Russia's economic growth, especially if it improves its participation in global value chains.
• Russia has the potential to increase trade with large economies such as China.

Policy Recommendations

• Reduce Trade Costs: Lower non-tariff trade costs can enhance integration in GVCs.
• Improve Regulatory Quality: Enhancing institutional and regulatory quality can attract more FDI.
• Encourage Innovation: Despite high R&D spending, few firms in Russia actually innovate.
• Strengthen Domestic Production: Encouraging more backward participation in GVCs can help diversify the economy and reduce reliance on energy exports.

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Conclusion

Russia's economy faced significant challenges due to the resurgence of the pandemic in 2020, leading to GDP contraction, ruble depreciation, and rising unemployment. While fiscal and monetary policies provided some support, the outlook suggests a deeper fiscal consolidation in 2021-2022. The country has opportunities to deepen its integration into GVCs, particularly through trade with China and by improving its regulatory and institutional environment.